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LANCO INDUSTRIES

INDUSTRY PROFILE
INTRODUCTION:
Cement is a key infrastructure industry. It has been decontrolled from price and distribution on 1st march, 1989 and de-licensed on 25th July 1991. However, the performance of the industry and prices of cement are monitored regularly. The constraints faced by the industry are reviewed in the infrastructure coordination committee meetings held in the cabinet secretariat under the chairmanship of secretary (coordination). The cabinet committee on infrastructure also reviews its performance. Indias stand in the world India is the 4th largest cement producer world wide, following china, Japan and U.S.A. Indias percapita consumption is only 78kg as compared to the world average of 251kg by the turn of the century. Indias capacity is expected to crores 100 million tones. The industry has 59 companies owning 115 plants. In the matter of exports, the government considers cement as an extreme focus area. However, industry experts comment that exports are mainly for keeping a check on the domestic prices, which get adversely affected due to exam production. In the global market. India cement is not very competitive due to high power and fuel costs. In order to improve its position in the international market, technological up gradation is essential in terms of process, product diversification, cost reduction quality control and energy savings.

LANCO INDUSTRIES

CEMENT INDUSTRY HIGHLIGHTS


The Indian cement industry has high return on investment. There exists a large markers which are not yet been completely tapped. With the existing levels of supply and growing demand the prices tend to rise. But the industry being a fast growing one, many players are attracted. Every year new capacities are added raising the supply, price stability is thus maintained and the high profits are observed by new entrants. The percapita consumption of manufacture commodities like steel, power and cement ate indicators of the economic state of a country. The total output nearly 95% is accounted for only 90%, while the government sector accounts for 10%. The housing activity accounts for 55% of total consumption. Nearly 47% of the total costs, most of which are administrated prices are beyond the control of cement units. The cost elements include limestone, coal, transport freight, power consumption and excise duty.

GROWTH OF LANCO AND IMPLEMENTATION PLAN


Immediately after take over an amount of Rs.2200 lakhs was infused as share During 2003, the capacity of the DI pipes was increased to 90000 TPA. During 2004, the company took the step of backward integration by During 2005, the company started setting up of a captive power plant of 12

capital of the company by M/s ECL to strengthen the equity base of the company.

commissioned in June 2005. MW by using the waste heat recovered from the coke oven plant, which is expected to be commissioned by March 2006. An additional amount of Rs.25 crores is being spent on other capital works like revamping of bitumen coating machine, balancing equipment and facilities for production of higher diameter DI pipes etc., to increase the capacity of DI pipes from the present 90000 TPA by 2006-07.

LANCO INDUSTRIES

COMPANY PROFILE
LANCO industries limited are one of the best mini-blast furnace pig iron manufacturing units in our country, and it was the 5th plant under Tata-Kore Technology. The company was incorporated on November 1st 1991 under companies act-1956, in the name of LANCO Ferro LTD. To company started construction work in august 1993. The entire construction work was completed in a record time of 12 months. This was achieved by team work of Lanco collective and the best efforts of the contractors. With these achievements the company started commercial productions in September 1994. The name LANCOFERRO LIMITED was changed to LANCO INDUSTIES LIMITED on July 6th 1994. LANCO INDUSTRIES LIMITED is located in between TIRUPATI and SRIKALAHASTHI with an access of 30kms from TIRUPATI about 10 kms for SRIKALAHASTHI. The reasons for LANCO INDUSTRIES at RACHAGUNNERI village, SRIKALAHASTHI mandalam of chittoor district Andhra Pradesh are as follows, Cheap availability of required land. There is more water resource. The distance between the harbor and present work spot is less. Proximity of raw materials. Proximity to marketing. To have financial subsidy. Nearer to railway sidings. Availability of labour.

LANCO INDUSTRIES

LOCATION
Lanco Industries Limited is rural based factory sprawling over many areas of land with deep resources and congenial soil. It is located in Rachagunneri village near Tirupati, nearly 50% of the consumption of electrical power is supplied by APSEB, government of Andhra Pradesh and other 50% of power is maintained by the company owned DG sets and power plants. Since it is a rural area labour potential is available an also company is enjoying the subsidies from state government.

VISION

To empower, enable and enrich partners, businesses and associated. To be a chosen vehicle of growth for all stakeholders and a source of inspiration to society.

MISSION

To be a leader in all areas key to the development of a nation and progress of the world. To be a leader in the field of infrastructure, manufacturing and information technology. To become learning organization and enable people to think like geniuses.

SERVICE TO SOCIETY
In addition to his entrepreneurial spirit, Raja gopal has a strong sense of social responsibility. He established LANCO institute of general Humanitarian Trust (LIGHT), a Charitable Trust, in 200 to reach out to the needy and has been involved in various philanthropic activities.

LANCO INDUSTRIES

CAREERS WITH LANCO INDUSTRIES (future plans)


Developing a world-class organization driven by excellence Delivering the best products and services and tiring to achieve customer delight Empowering our people and creating an environment of learning Striving to remain a company driven by innovation and entrepreneurship Being a socially responsible corporate citizen

LANCO INDUSTRIES

REVIEW OF LITERATURE
Financial Management has always vital and an integrated part of business management. Financial management is concerned with the planning and controlling of the firms financial resource. It is often said that the financial management has received less emphasis as compared to topics like production and marketing. However, the task of financial planning and controlling will assume relative more important role than in the past due to certain changes that have taken place or will take place in economy. Factors such as increasing pace of industrialization, technological innovations land inventions, raising price levels, increasing of government in financial matters etc.

DEFINITION OF FINANCIAL MANAGEMENT


Financial Management as an application of general managerial principles to the area of financial decision making. Howard and Upton

Financial Management is an area of financial decision making harmonizing individual motives and enterprise goals. Western and Brigham

OBJECTIVES OF FINANCIAL MANAGEMENT


The financial objective of a company is to maximize owners economic welfare. However, there is disagreement as to how the economic welfare of owners can be maximized. The maximization must be divided into two types. They are, 1. Profit Maximization

LANCO INDUSTRIES 2. Wealth Maximization

1. PROFIT MAXIMIZATION
An individual or firm performing any economic activity rationally aims at utility maximization. Utility can be measured in term of profit. Profit maximization ensures the use of resources the best of their advantage to gain maximize out of them. It maximizes the social economic welfare. It will be a motive force to acquire monopoly power in the perfect product market.

2. WEALTH MAXIMIZATION
According to prof. Solman, maximization of the wealth provides a useful and meaningful objective as basic guideline by which financial decision should be valuated. Wealth maximization means maximizing the net present value of a course of action to share holders. The net present value (NPV) of a course of action is difference between the present value its benefits and present value of the cost. The positive value creates wealth and it is desirable. The negative present value should be rejected.

TOOLS OF FINANCIAL STATEMENTS


The financial statement may be made simpler for any reader to understand the operating results and financial health of business concern. The techniques of financial analysis are: 1. Comparative Statement 2. Common size Percentage 3. Trend Percentage 4. Fund Flow Statement 7

LANCO INDUSTRIES 5. Cash Flow Statement 6. Ratio Analysis

CONCEPT OF RATIO ANALYSIS


A ratio is a statistical yardstick or mathematical expression. One of the techniques of ratio analysis of financial statement is calculate ratios. Ratio is the numerical or an arithmetical relationship between two figures or variables. It is simply one number expressed in term of another.

NATURE OF RATIO ANALYSIS


Ratio analysis is a powerful tool of financial analysis. A ratio is defined as the indicated quotient of mathematical expression and as the relationship between two or more things. In financial analysis, a ratio is used as a benchmark for a evaluating the financial position and performance of the firm.

OBJECTIVES OF RATIO ANALYSIS


A number of parties are interested in ratio analysis as it a tool for analysis and interpretation of financial statement. To ascertain liquidity To measures long-term solvency To assess operating efficiency To compute probability To estimate trend in cost, Sales etc and forecast future.

LANCO INDUSTRIES

USERS OF RATIO ANALYSIS


Financial analysis is the process of identifying the financial strength and weakness of firm by properly establishing relationships between the items of balance sheet and the profit and loss account. Trade creditors are interested in firms ability to meet their claims over a very short period of time. Their analysis will, there fore, confine to the evaluation of the firms liquidity position. Suppliers of long-term debt are concerned with firms long-term solvency and survival. They analyze the firms profitability overtime, its ability to generate cash to be able to pay interest and repay principal and the relationship between sources o funds. Investors, who have invested their money in the firms shares, are most concerned about the firms earnings. They restore more confidence in those firmss that show steady growth in earnings. They concentrate on the analysis of the firms present and future profitability. Management of the firm would be interested in every aspect of the financial analysis. It is their overall responsibility to see that the resources of the firm are used most effectively and efficiently, and that the firms financial condition is sound.

LANCO INDUSTRIES

ADVANTAGES OF RATIO ANALYSIS


The advantages of ratio analysis are as follows, 1. Useful in financial position analysis 2. Useful in simplifying accounting figure 3. Useful in assessing the operational efficiency 4. Useful in forecasting purpose 5. Useful in locating the weak spot of business

LIMITATIONS OF RATIO ANALYSIS


The limitations of this ratio analysis is, 1. Limited use of a single ratio 2. Lack of adequate standards 3. No idea probable happening in future 4. Price level changes 5. Inherent limitations of accounting

CLASSIFICATION OF RATIOS
Several ratios calculated from the accounting data, can be grouped into various classes according to financial activity or function to be evaluated. The parties interested in financial analysis are short and long-term creditors, owners and management. Short-term creditors main interest is in the liquidity position or the shortterm solvency of the firm. Long-term creditors are more interested in the long-term solvency and profitability of the firm. Similarly, owners concentrate on firms profitability and financial condition. Management is interested in evaluating every aspect of the firms performance.

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LANCO INDUSTRIES

In view of the requirements of the various uses of ratios, we may classify them into: 1. Liquidity Ratio 2. Leverage Ratio 3. Activity Ratio 4. Profitability Ratio

1. LIQUIDITY RATIO:
Liquidity ratios measure the ability of the firm to meet in current obligations. Liquidity ratios, by establishing a relationship between cash and other current assets to current obligations, provide a quick measure of liquidity. A firm should not suffer from lack of liquidity and excess liquidity. It should strike a proper balance between the high and lack of liquidity. To measure the liquidity of a firm, the following ratios can be calculated. Current Ratio Quick Ratio Cash Ratio Net Working Capital Ratio

2. LEVERAGE RATIO:
The short-term creditors, like bankers and suppliers of raw material, are more concerned with firms current debt-paying ability. On the other hand, long-term creditors, like debenture holders, financial institutions etc., are more concerned with the firms long-term financial strength. These ratios indicate mix of funds provided by owners and lenders. The process of magnifying the share holders return through the use of debt is called Financial Leverage or Financial Gearing or Trading on Equity. Leverage

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LANCO INDUSTRIES ratios are calculated to measure the financial risk and the firms ability of using debt to share holders advantage.

The following are the some of the leverage ratios. They are: Debt Equity Ratio Fixed Assets Ratio Proprietary Ratio

3. ACTIVITY RATIO:
Funds of creditors and owners are invested in various assets to generate sales and profits. The better the management of assets, the larger the amount of sales. Activity ratios are employed to evaluate the efficiency with which the firm manages and utilizes its assets. These are also called Turnover Ratios, because they indicate the speed with which the assets are being converted or turned over into sales. Activity ratios, thus involves a relation between sales and assets. It helps to judge the effectiveness of assets utilization. Some of the important ratios are as follows: Inventory Turnover Ratio Working Capital Turnover Ratio Fixed Assets Turnover Ratio Debtors Turnover Ratio Total Assets Turnover Ratio Net Assets Turnover Ratio Debtors Collection Period Creditors Payment Period

4. PROFITABILITY RATIO:
Profit is the difference between revenues and expenses over a period of time. Profit is the ultimate output of a company, and it will have no future if it fails to

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LANCO INDUSTRIES make sufficient profits. Profitability ratios are calculated to measure the operating efficiency of the company.

Some of the important profitability ratios are as follows: Operating Profit Ratio Operating Ratio Gross Profit Ratio Non-Operating Income Ratio Operating Expenses Ratio Net Profit Ratio

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LANCO INDUSTRIES

RESEARCH METHODOLOGY
PRIMARY DATA:
The primary data was collected the interactions and discussions with companys executives.

SECONDARY DATA:

Most of the calculations are made on the financial statements of the company and the company provided financial statement for four financial years i.e., 2004-2005, 2005-2006, 2006-2007 and 2007-2008.

Some of the information regarding to the theoretical aspects were collected by referring standard text books and through internet.

TOOLS OF ANALYSIS:
The data relating to the performance of LANCO INDUSTRIES LIMITED drawn from the different sources have been analyzed by using appropriate financial tools.

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LANCO INDUSTRIES

OBJECTIVES OF THE STUDY


The project FINANCIAL PERFORMANCE OF RATIO ANALYSIS is based on the information collected from the annual reports of the company. The following are the main object of the present study. 1. To measure the overall financial performance of Lanco Industries Limited. 2. To find out the operating efficiency of the organization 3. To study the important financial aspect like the liquidity, activity and profitability of the company. 4. To determine the long term financial solvency of a firm through ratio analysis.

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LANCO INDUSTRIES

NEED OF THE STUDY


Financial statements are prepared for the purpose of presenting a periodical review or report by management in business and result achieved during the period under review. It reflects a combination of recorded facts, accounting conventions, and personal judgments. Financial analysis helpful in assessing the financial position and profitability of the concern.

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LANCO INDUSTRIES

SCOPE OF THE STUDY


The scope of the first study is to give a clear picture about the financial position of Lanco Industries Limited and to identify the short comings and to suggest the measure to overcome the problem if any. Secondly the study is based on the annual reports of the company for a period of 5 years from 2003-2004 to 2007-2008 the reason for restricting the study to this period is due Time constraints.

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LANCO INDUSTRIES

LIMITATIONS OF THE STUDY

The study is based on the information provided by the organization in the form of various annual reports and it is not standard.

The study is based on only the balance sheets and profit & loss accounts of the company and it has its own limitations.

Ratio analysis only provides a glimpse of the past performance and forecasts for future may not be correct since several other factors like market conditions, management policies etc., may effect the future operations.

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LANCO INDUSTRIES

DATA ANALYSIS AND INTERPRETATION


1. LIQUIDITY RATIOS:CURRENT RATIO:
Current ratio expresses relationship between current assets and current liabilities. It is computed by dividing current assets and current liabilities. A higher current ratio indicates welcome sign 2:1 is considered an ideal current ratio in ideal situation. For only one of worth of current liabilities, company should be maintained two of worth of current assets. Current Assets Current Ratio = ------------------------------Current Liabilities Table 1:

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LANCO INDUSTRIES

Current Ratio
3.00 2.50 2.00 Current Ratio 1.50 1.00 0.50 0.00 2003-04 2004-05 2005-06 2006-07 2007-08 years Current Ratio

Inference:
The current ratio of LIL varied from 2.01 to with an average of 2.16 during the study period. In the above table and chart, the ratio of current assets and current Current Assets Year 2003-04 2004-05 2005-06 2006-07 2007-08 (Rs. in lakhs) 11302.96 16137.54 18321.76 26196.83 26616.98 Current Liabilities (Rs. in lakhs) 5625.29 8681.59 9556.53 10726.59 10030.68 Current Ratio 2.01 1.86 1.92 2.44 2.65

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LANCO INDUSTRIES liabilities should be 2:1 according to the financial report of the company that the firm is liquid and has ability to pay its current obligations in time.

QUICK RATIO:
Quick ratio express relationship between quick assets and current liabilities. It is obtained by measures quick assets by current liabilities. A quick ratio of 1:1 is considered adequate. For every one rupee current liabilities there should be maintained one rupee of worth of quick assets. Quick Assets Quick Ratio = ------------------------------Current Liabilities Table 2: Current Assets Year 2003-04 2004-05 (Rs. In Lakhs) 11302.96 16137.54 Inventory (Rs. in Lakhs) 5294.05 7075.18 Current Liabilities 5625.29 8681.59 Quick Ratio 1.07 1.04

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LANCO INDUSTRIES 2005-06 2006-07 2007-08 18321.76 26196.83 26616.98 9194.08 10636.86 12092.91 9556.53 10726.59 10030.68 0.96 1.45 1.45

Quick Ratio
1.60 1.40 1.20 1.00 Quick Ratio 0.80 0.60 0.40 0.20 0.00

2003-04 2004-05 2005-06 2006-07 2007-08 years Quick Ratio

Inference:
The quick ratio of LIL varied from 1.07 to 1.45 with an average of 1.11. It was above standard norm of 1:1 for the entire period. It conforms that the liquidity

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LANCO INDUSTRIES position of this LIL in terms quick ratio was more than the standard except in the 2005-06 financial year. The firms capacity of pays of currant obligations immediately and is a test of liquidity. The high quick ratio is an indicate of the firm is liquid and has the ability to meet is current liabilities.

CASH RATIO:
This ratio is also called Absolute Liquidity Ratio or Super Quick Ratio. Since cash is the most liquid asset, a financial analysis may examine cash ratio and its equivalent to liabilities. Trade investment or marketable securities are equivalent of cash, the reform, they may be included in the computation of cash ratio is, (Cash + Marketable Securities) Cash Ratio = ---------------------------------------------------Current Liabilities Table 3: Cash Year
2003-04

Current Liabilities (Rs. in lakhs)


5625.29

(Rs. in lakhs)
447.49

Cash Ratio
0.08

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LANCO INDUSTRIES
2004-05 2005-06 2006-07 2007-08 247.72 350.67 2650.37 420.1 8681.59 9556.53 10726.59 10030.68 0.03 0.04 0.25 0.04

Cash Ratio
0.25 0.20 0.15 Cash Ratio 0.10 0.05 0.00 2003-04 2004-05 2005-06 2006-07 2007-08 years Cash Ratio

Inference:

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LANCO INDUSTRIES The cash ratio of LIL was started low at first by 0.08 in the year 2003-04 and it was decreased by next two years. Then it was increased by 0.25 in the year 200607. Finally, at the last year it was fastly decreased by 2007-08 by 0.04. So, it is bad position.

NET WORKING CAPITAL RATIO:


Working capital turn over ratio indicates velocity of the utilization of net working capital. This ratio indicates number of times the working capital is turned over in the course of year. This ratio measures the efficiency with which the working capital is being used by a firm. Net Working Capital NWC Ratio = ------------------------------------Net Assets Table 4: Networking Capital Year (Rs. in lakhs) Net Assets (Rs. in lakhs) NWC Ratio

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LANCO INDUSTRIES
2003-04 2004-05 2005-06 2006-07 2007-08 5677.67 7455.95 8765.23 15470.24 16586.3 22264.36 28680.37 32901.4 40386.36 43836.66 0.26 0.26 0.27 0.38 0.38

NWC Ratio
0.40 0.35 0.30 0.25 NWC Ratio 0.20 0.15 0.10 0.05 0.00

2003-04 2004-05 2005-06 2006-07 2007-08 years NWC Ratio

Inference:

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LANCO INDUSTRIES The NWC ratio of LIL was started with 0.26 in the first year 2003-04 and it was increased same like another two years respectively. The NWC ratio was increased to 0.38 by the year 2006-07 and it was constant to next 2007-08 year. The average NWC ratio of LIL is 0.40 for during period.

2. LEVERAGE RATIO:DEBT RATIO:


Several debt ratios may be used to analyze the long term solvency of a firm. The firm may be interested in knowing the proportion of the interest bearing debt in a capital structure. It may therefore, compute debt ratio by dividing total debt by capital employed. Capital employed will include total debt and net worth. Total Debt Debt Ratio = -------------------------------Capital Employed Table 5:

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LANCO INDUSTRIES Year


2003-04 2004-05 2005-06 2006-07 2007-08

Total Debt
16127.82 20899.21 24931.96 31301.36 32679.87

Capital Employed
22264.36 28680.31 32901.4 40386.36 43836.66

Debt Ratio
0.72 0.73 0.76 0.78 0.75

Debt Ratio
0.78 0.77 0.76 0.75 0.74 Debt Ratio 0.73 0.72 0.71 0.70 0.69

2003-04 2004-05 2005-06 2006-07 2007-08 years Debt Ratio

Inference:

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LANCO INDUSTRIES The debt ratio of LIL was started with 0.72 at first year 2003-04. It was increased to 0.73, 0.76 and 0.78 by remaining years i.e.2004-05, 2005-06 and 2007-08 respectively. The last year it was decreased with 0.75. The average debt ratio of LIL is 0.74 for the above study period.

DEBT EQUITY RATIO:


The relationship describing the leaders contribution for each rupee of owners contribution is called Debt Equity Ratio. The debt equity measures the long term financial solvency of a business concern. The ratio is also popularly known as External or Internal equity ratio. This ratio can also be viewed as including the relative proportion of debt amends equity in financing the assets of the business unit. Total Debt Debt Equity Ratio = ---------------------------Net Worth Table 6:

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LANCO INDUSTRIES Year


2003-04 2004-05 2005-06 2006-07 2007-08

Total Debt
16127.82 20899.21 24931.96 31301.36 32679.87

Net Worth
6136.54 7781.1 7969.42 9085.06 11156.06

Debt Equity Ratio


2.63 2.69 3.13 3.45 2.93

Debt Equity Ratio


3.50 3.00 2.50 Debt Equity 2.00 Ratio 1.50 1.00 0.50 0.00 2003-04 2004-05 2005-06 2006-07 2007-08 years Debt Equity Ratio

Inference:

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LANCO INDUSTRIES The debt equity ratio of LIL was started with 2.63 at first time in the year 2003-04 and then it was increased up to 3.45 in the year 2006-07. At last it was decreased by 2.93 in the year 2007-08. The average debt equity ratio of LIL is 2.96 during the Study period.

CAPITAL EMPLOYED TO NET WORTH RATIO:


This ratio is also known as equity ratio. This is yet another way of expressing relationship between debt and equity. This to know how much funds ate being contributed together by lenders and owners for each rupee of owners contribution. Capital Employed Capital Employed To Net worth Ratio = --------------------------------Net Worth Table 7: Capital Year
2003-04

Capital Employed to Net Worth


5577.2

Employed
9908.67

Net worth Ratio


1.78

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LANCO INDUSTRIES
2004-05 2005-06 2006-07 2007-08 22264.36 28256.36 32283.34 40386.36 6136.54 7781.1 7969.42 9085.06 3.63 3.63 4.05 4.45

Capital Employed to Networth Ratio


4.50 4.00 3.50 Capital 3.00 Employed to 2.50 Networth 2.00 1.50 Ratio 1.00 0.50 0.00

2003-04 2004-05 2005-06 2006-07 2007-08 years Capital Employed to Networth Ratio

Inference:

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LANCO INDUSTRIES This ratio of LIL was started with 3.63 at first year 2003-04 and it was increased up to 4.45 in the year 2006-07. At last it may decrease by 3.93 in the year 2007-08. The average of this ratio of LIL is 3.96 during the study period.

3. ACTIVITY RATIOS:INVENTORY TURN OVER RATIO:


It indicates whether inventory is efficiently used or not the purpose is to see whether only the required minimum funds have been locked up to inventory. This ratio implies number of times stock has been turned over during a period and evaluates efficiency with which a firm is able to manage its inventory. Usually a high inventory turn over ratio indicated efficient management of inventory. A low inefficient management of inventory indicating over investment in inventories, debt business, poor quality of goods, stock accumulation and low profit as compared to total investment. Sales Inventory Turn over Ratio = -----------------------Inventory Table 8: 33

LANCO INDUSTRIES Sales Year


2003-04 2004-05 2005-06 2006-07 2007-08

Inventory (Rs. In lakhs)


5294.05 7075.18 9194.08 10636.86 12092.91

(Rs. in lakhs)
21024.1 28607 30295.6 36936 46365

Inventory Turn Over Ratio


3.97 4.04 3.30 3.47 3.83

Inventory Turn Over Ratio


4.50 4.00 3.50 3.00 2.50 2.00 1.50 1.00 0.50 0.00 2003-04 2004-05 2005-06 2006-07 2007-08 years Inventory Turn Over Ratio

Inventory Turn Over Ratio

Inference:
The inventory turn over ratio of LIL was started with 3.97 at 2003-04. It was increased by 4.04 i.e., 2004-05 and slowly fluctuation by next 2 years. It was

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LANCO INDUSTRIES increased by 3.83 i.e., 2007-08. The average ratio of LIL is 3.72 for the above study period.

DAYS INVENTORY HOLDINGS:


The reciprocal of inventory turn over gives average inventory holdings in % term. When the number of days in a year (say 360) are divided by Inventory Turn over Ratio. 360 Days Inventory Holdings = ---------------------------------------Inventory Turn over Ratio Table 9:

Year
2003-04 2004-05 2005-06

Inventory Turn Over Ratio


3.97 4.04 3.30

Days Inventory Holdings


90.7 89.1 109.1

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LANCO INDUSTRIES
2006-07 2007-08 3.47 3.83 103.7 94.0

Days Inventory Holdings


Days Inventory Holdings

120.0 100.0 80.0 60.0 40.0 20.0 0.0 2003-04 2004-05 2005-06 2006-07 2007-08
years Days Inventory Holdings

Inference:
The days inventory holdings of LIL was started with 90.7 at 2003-04 and it was decreased by 89.1 in the year 2004-05. Then it was again increased by 109.1 at 36

LANCO INDUSTRIES 2005-06. At last it was decreased by 103.7 to 94.0 in the years 2006-07 and 2007-08 respectively.

DEBTORS TURN OVER RATIO:


Debtors turn over ratio indicate this ratio the relationship between sales and average debtors. It is showing by dividing credit sales. Higher turn over ratio indicated better performance and lower turn over ratio indicated inefficiency. It includes debtors as well as the bills receivables. Sales Debtors Turn Over Ratio = ------------------------Debtors Table 10: Sales Year
2003-04

Debtors (Rs. in lakhs)


4098.66

(Rs. in lakhs)
21024.1

Debtors Turn Over Ratio


5.13

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LANCO INDUSTRIES
2004-05 2005-06 2006-07 2007-08 28607 30295.6 36936 46365 7197.89 6706.59 7667.92 8814.31 3.97 4.52 4.82 5.26

Debtors Turn Over Ratio


Debtors Turn Over Ratio 6.00 5.00 4.00 3.00 2.00 1.00 0.00 2003-04 2004-05 2005-06 2006-07 2007-08 years Debtors Turn Over Ratio

Inference:

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LANCO INDUSTRIES The debtors turn over ratio of LIL was started with 5.13 by the year 200304. It was going up to, increased by 4.52 to 4.82 and it stands at last by 5.26 in the years 2004-05, 2005-06 and 2007-08 respectively. The debtors turn over ratio average of LIL is 4.74 for the above study period.

AVERAGE COLLECTION PERIOD (DAYS):


The average number of days for which debtors remain outstanding is called the average collection period and can be computed as follows, The average collection period measures the quality of debtors since it indicates the speed of their collection. The shorter the average collection period, the better of debtors, since a short collection period of the debtors. 360 Average Collection Period (Days) = -----------------------------------------Debtors Turn Over Ratio Table 11:

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LANCO INDUSTRIES Average Collection Year


2003-04 2004-05 2005-06 2006-07 2007-08

Debtors Turn Over Ratio


5.13 3.97 4.52 4.82 5.26

period(Days)
70.2 90.7 79.6 74.7 68.4

Average Collection period(Days)


100.0 Average Collection period(Days) 80.0 60.0 40.0 20.0 0.0 2003-04 2004-05 2005-06 2006-07 2007-08 years Average Collection period(Days)

Inference:

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LANCO INDUSTRIES The Collection period of LIL was started with 70 days at 2003-04. It was increased to another two years by 90 and 80 i.e. 2004-05 and 2005-06. Then the next year2006-07 it was decreased by 75 days and the last year decreased with 68 i.e. 2007-08. The average collection period of LIL is 76.7 days during the study period.

NET ASSETS TURN OVER RATIO:


Assets are used to generate sales. Therefore, a firm should manage its assets efficiently to maximize sales. The relationship between sales and assets is called assets turn over ratio. Sales Net Assets Turn over Ratio = -------------------------Net assets Table 12: Sales Year
2003-04

Net Assets (Rs. in lakhs)


22264.36

Net Assets Turn Over Ratio


0.94

(Rs. in lakhs)
21024.1

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LANCO INDUSTRIES
2004-05 2005-06 2006-07 2007-08 28607 30295.6 36936 46365 28680.37 32901.4 40386.36 43836.66 1.00 0.92 0.91 1.06

Net Assets Turn Over Ratio


1.10 Assets Turn Over Ratio 1.05 1.00 0.95 0.90 0.85 0.80 2003-04 2004-05 2005-06 2006-07 2007-08 years Assets Turn Over Ratio

Inference:

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LANCO INDUSTRIES The net assets turn over ratio of LIL was 0.94 in the year 2003-04. It was increased and decreased by1.00 to 0.92 and 0.91 in the years2004-05 to 2006-07 respectively. Then it was increased in the year 2007-08 by 1.06. The average of net assets turn over ratio of LIL is 0.96 during the above study period.

TOTAL ASSETS TURN OVER RATIO:


This ratio expressed the relationship between the amount in the assets and results accruing in terms of sales. This ratio indicates better utilization and vice versa. This ratio is ideal capacity the fraction standard ratio 2:1. Sales Total Assets Turn over Ratio = ----------------------------Total Assets Table 13: Sales Year (Rs. in lakhs) Net Fixed Assets (Rs. in lakhs) Current Assets (Rs. in lakhs) Total Assets Turn over Ratio

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LANCO INDUSTRIES
2003-04 2004-05 2005-06 2006-07 2007-08 21024.1 28607 30295.6 36936 46365 15889.32 20619.42 24129.72 24912.53 27242.36 11302.96 16137.54 18321.76 26196.83 26616.98 0.77 0.78 0.71 0.72 0.86

Total Assets Turn over Ratio


Total Assets Turn over Ratio 1.00 0.80 0.60 0.40 0.20 0.00 2003-04 2004-05 2005-06 years 2006-07 2007-08 Total Assets Turn over Ratio

Inference:

44

LANCO INDUSTRIES Total assets turn over ratio in the year 2003-04 to 2007-08 is 0.77, 0.78, 0.71, 0.72, and 0.86 respectively. This ratio is ideal capacity the fraction standard ratio 2:1 the company is not maintain the satisfactory level. The Average Total Assets Turn over Ratio of LIL is 0.76 during the above study period.

FIXED ASSETS TURN OVER RATIO:


This ratio is calculated by dividing Sales into Net Fixed Assets. This ratio expressed the number of times fixed assets are being turn over in a stated period. This ratio shows how well the fixed assets are being used in business. The higher ratio is shows that better utilization of the plants and equipment another a low ratio indicated that fixed assets are not being efficiently utilized. Sales Fixed Assets Turn over Ratio = -----------------------------Net Fixed Assets Table 14:

45

Sales Year
2003-04 2004-05 2005-06 2006-07 2007-08

LANCO INDUSTRIES Net Fixed Assets Fixed Assets Turn (Rs. in lakhs)
15889.32 20619.42 24129.72 24912.53 27242.36

(Rs. in lakhs)
21024.1 28607 30295.6 36936 46365

over Ratio
1.32 1.39 1.26 1.48 1.70

Fixed Assets Turn over Ratio


Fixed Assets Turn over Ratio 1.80 1.60 1.40 1.20 1.00 0.80 0.60 0.40 0.20 0.00 2003-04 2004-05 2005-06 years 2006-07 2007-08 Fixed Assets Turn over Ratio

Inference:
46

LANCO INDUSTRIES The Fixed Assets Turn over Ratio of LIL was started with 1.32 in the year 2003-04. Then it was increased and decreased by 1.39 and 1.26 by the years 2004-05, 2005-06 respectively. At last it was increased by 1.48 to 1.70 in the years 2006-07 and 2007-08 respectively. Then the average of this ratio of LIL is 1.43 during the above study period.

CURRENT ASSETS TURN OVER RATIO:


This ratio is calculated by dividing sales into current assets. This ratio expressed the number of times current assets are being turn over in a started period. This ratio shows how well the current assets are being used in business. The higher ratio is showing that better utilization of the current assets another a low ratio indicated that current assets are not being efficiently utilized. Sales Current Assets Turn over Ratio = -------------------------Current Assets Table 15:

47

Sales Year
2003-04 2004-05 2005-06 2006-07 2007-08

Current Assets (Rs. in lakhs)


11302.96 16137.54 18321.76 26196.83 26616.98

LANCO INDUSTRIES Current Assets Turn over Ratio


1.86 1.77 1.65 1.41 1.74

(Rs. In lakhs)
21024.1 28607 30295.6 36936 46365

Current Assets Turn over Ratio


Current Assets Turn over Ratio 2.00 1.50 1.00 0.50 0.00 2003-04 2004-05 2005-06 2006-07 2007-08 years Current Assets Turn over Ratio

Inference:
48

LANCO INDUSTRIES The current assets turn over ratio of LIL was started with 1.86 in the year 2003-04 and it was decreased by 1.77, 1.65 and 1.41 i.e. 2004-05, 2005-06 and 2006-07 respectively. Then it may increased by 1.74 in the year 2007-08. The average current assets turn over ratio of LIL 1.68 during the above study period.

WORKING CAPITAL TURN OVER RATIO:


The ratio expressed the relationship between sales and working capital. A higher working capital turn over ratio indicated more efficiency, the lesser investments in working capital and greater the profit. Sales Working Capital Turn over Ratio = ----------------------------Net Current Assets Table 16: Sales Year
2003-04 2004-05

Net Current Assets (Rs. in lakhs)


5677.67 7455.95

Working Capital Turn Over Ratio


3.70 3.84

(Rs. in lakhs)
21024.1 28607

49

LANCO INDUSTRIES
2005-06 2006-07 2007-08 30295.6 36936 46365 8765.23 15470.24 16586.3 3.46 2.39 2.80

Working Capital Turn Over Ratio


4.50 4.00 3.50 3.00 2.50 2.00 1.50 1.00 0.50 0.00 2003-04 2004-05 2005-06 2006-07 2007-08
years Working Capital Turn Over Ratio

Working Capital Turn Over Ratio

Inference:
The Working Capital Turn over of LIL was started with 3.7 in the year 2003-04. Then it was increased by 3.84 in the year 2004-05. At the last three years 50

LANCO INDUSTRIES i.e.2005-06, 2006-07 and 2007-08 it was decreased by 3.46, 2.39 and 2.80 respectively. The average of Working Capital Turn over Ratio of LIL is 3.24 during the study period.

4. PROFITABILITY RATIOS:GROSS PROFIT RATIO:


This ratio established a relationship between gross profit into sales. It is calculated by gross profit by sales. It indicates the position of trading result. The higher gross profit ratio is indicated better performance and lower gross profit ratio is shown unfavorable. Gross Profit Gross Profit Ratio = --------------------------- * 100 Sales Table 17:

Year

Gross Profit

Net Sales

Gross Profit Ratio

51

LANCO INDUSTRIES
2003-04 2004-05 2005-06 2006-07 2007-08 3218.04 3474.2 608.91 2164 4001.44 23858.3 31587 33589 41045 49472 13.49 11.00 1.81 5.27 8.09

Gross Profit Ratio


14.00 12.00 10.00 Gross Profit 8.00 Ratio 6.00 4.00 2.00 0.00 2003-04 2004-05 2005-06 2006-07 2007-08 years Gross Profit Ratio

Inference:

52

LANCO INDUSTRIES The Gross Profit Ratio in the year 2003-04 is 13.49, and it is decreased in the next two years, 2004-05 and 2005-06 by 11.00 to 1.81 respectively. Later it is increased in the year2006-07 and 2007-08 by the values of 5.27 and 8.09 respectively.

NET PROFIT RATIO:


Net profit ratio is established a relationship between net profit after tax in to sales. This ratio is very useful to the proprietors invests because it reveals over all profitability concern. This ratio indicated the efficiency of the management in manufacturing, selling and distribution, administration and other expensive actives. The higher net profit ratio indicated the better performance because it uses idea of improves efficiency of the concern. Net Profit after Tax Net Profit Ratio = ----------------------------- *100 Net Sales Table 18:

53

LANCO INDUSTRIES Net Profit after Year 2003-04 2004-05 2005-06 2006-07 2007-08 Tax 2552.8 2698.3 1163.79 2417 3395.2 Net Sales 21024.1 28607.2 30295.6 36936 46365.6 Net Profit Ratio 12.14 9.43 3.84 6.54 7.32

Net Profit Ratio


14.00 12.00 10.00 Net Profit 8.00 Ratio 6.00 4.00 2.00 0.00 2003-04 2004-05 2005-06 2006-07 2007-08 years Net Profit Ratio

Inference:

54

LANCO INDUSTRIES The above graph shows the Net Profit Ratio of five years from 2003-08. This shows the relation between Profit after Tax and Net Sales. The Net Profit Ratio in the year 2003-04 is 12.14 and it will decreased in the years 2004-05 and 2005-06 by 9.43, 3.84 respectively. At the last two years the ratio is 6.54 and 7.32 i.e. 2006-07 and 200708 respectively.

EARNINGS PER SHARE:


The final ratio employed in this analysis is earning per share. This is one of the most important ratios from the share holders point of view as it measures the profitability of the share holders investment in a direct manner. The profitability of the common share holders investment can also be measured in many other ways. One such measure is to calculate the earning per share. It is calculated dividing their profits after taxes by total number of ordinary share out standing. Profit after Tax Earnings per Share = -----------------------------Number of Shares

55

LANCO INDUSTRIES Table 19: Profit After Year


2003-04 2004-05 2005-06 2006-07 2007-08

Number of Equity Share Holders


530 530 530 530 530

Tax
2604.61 2094.1 415.02 1580.1 2591.74

Earnings Per Share


4.91 3.95 0.78 2.98 4.89

Earnigs Per Share


5.00 4.50 4.00 3.50 Earnigs Per 3.00 2.50 Share 2.00 1.50 1.00 0.50 0.00

2003-04 2004-05 2005-06 2006-07 2007-08 years Earnigs Per Share

Inference:
56

LANCO INDUSTRIES The Earnings per Share was 4.91 in the year 2003-04 and it was decreased up to 3.95 and 0.78 by the years 2004-05 and 2005-06. Then it was increased in the years 2006-07 and 2007-08 by the values of 2.98 and 4.89 respectively.

BOOK VALUE PER SHARE:


The book value per share shows the value of the share in the book means by this ratio we can know the weather the company is maintaining the reserves or not. If the company maintains the reserves the book value of the share will increase. This ratio can be obtained dividing net worth by the number of equity shares. Net Worth Book Value per Share = -------------------------------------Number of Equity Shares Table 20:

57

LANCO INDUSTRIES Net Worth Year


2003-04 2004-05 2005-06 2006-07 2007-08

Number of Equity Shares


530 530 530 530 530

(Rs. in lakhs)
6136.54 7781.1 7969.42 9085.06 11156.06

Book Value Per Share


11.58 14.68 15.04 17.14 21.05

Book Value Per Share


25.00 20.00 Book Value 15.00 Per Share 10.00 5.00 0.00 2003-04 2004-05 2005-06 2006-07 2007-08 years Book Value Per Share

58

LANCO INDUSTRIES

Inference:
The Book Value per Share was 11.58 in the year 2003-04 and it was increased up to 2004 to 2008 like 14.68, 15.04, 17.14 and 21.05 respectively. So, its ratio is proprietary satisfactory.

FINDINGS AND SUGGESTIONS


FINDINGS
The standard current ratio is 2:1. In the year 2003-04, 2004-05, 2005-06, 2006-07, and 2007-08 the current ratio is 2.01, 1.86, 1.92, 2.44, and 2.65 respectively. But it is not satisfactory in the year 2003-04, 2004-05, 2005-06 because of decrease in current assets and current liabilities. The standard quick ratio is 1:1 is considered to represent satisfactory current financial conditions. But in the year 2006as the company has not maintained quick assets sso it is not equal to the standard quick ratio. So the quick ratio is

59

LANCO INDUSTRIES satisfactory form 2004 to 2008 i.e. in 2004 it is 1.07, in 2005 it is 1.04, in 2006 it is 0.96, in 2007 it is 1.45 and in 2008 it is 1.45. In the year 2004-2008 the cash ratios are 0.08, 0.03, 0.04, 0.25and 0.04 respectively. But it is satisfactory in all years. So the company cash flow is very well. Debt equity ratio gives results relating to the capital structure of the firm. The company depending on debt fund if is fluctuating. In the year 2004 it is 2.63, 2005 it is 2.69 and from the year 2006, 2007 and 2008 it will be in continuous increasing trend 3.13, 3.45 and it has decreased to 2.93 in 2008. The capital employed to net worth ratio was 4.45 in the year 2007; it is more when compared to the other preceding years 2004 to 2005.

The inventory turn over ratio was started with 3.97 at 2003-04, it was increased by 4.04 i.e. 2004-05 and slowly fluctuating by next two years. It was increased by 3.83 i.e. 2007-08. The average turn over ratio is 3.72 for the above study period.

The gross profit shows a fluctuating trend. Gross profit ratio is a bad position and also the profit earnings were not good. The net profit ratio also shows a fluctuating trend, due to the bad position of net profit ratio and also the profit earnings were not good. The ratio from 2004-08 is 12.14, 9.43, 3.84, 6.54 and 7.32.

60

LANCO INDUSTRIES The earnings per share also show a fluctuating trend. The share holder is not satisfied. But it is increased to 2004 it was 4.91 and again the ratio was decreased up to 2005 to 2006 it was 3.95 and 0.78. Te book value per share was 11.58 in 2004 and it was increased in the year 2005 to 2007 like 14.68, 15.04 and 17.14. So its ratio is proprietary satisfactory.

SUGGESTIONS
The company is suggested to improve the net profit by increasing the volume of sales as it is found that sales percentage is fluctuating over the years. The company performance is largely dependent on the performance of the industry. The company should maintain sufficient cash to meet daily obligations.

61

LANCO INDUSTRIES The company has to go for integrated marketing, so that it can increase its sales, with this the profits will be increased. The debt equity ratios are fluctuating the company. It is suggested to maintain a low debt by procuring the funds through equity shares in order to maintain a better debt equity ratio. The company is suggested to improve the net profit by increasing the volume of sales as it is found that sales percentage is fluctuating over the years.

CONCLUSION
After studying the financial performance of LIL it is the found that the company is more depended on its own money, which is not suggestible for the growth of the company. The company expenditure more than spends to money i.e. limited; spend to expenditure to a company suggestion from me. Company fixed assets is increasing the years to years. The companies not interested to investment but concentrate to investment spend some of money. How ever the company financial position was satisfactory.

62

LANCO INDUSTRIES

BIBLIOGRAPHY
Author Title of the book Publisher Edition Author : I. M. Pandey : Financial Management : Vikas Publishers : 9th Edition : Prasanna Chandra

63

LANCO INDUSTRIES

Title of the book Publisher Edition Author Title of the book Publisher Edition Author Title of the book Publisher Edition

: Financial Management : Tata McGraw- Hill Co. Ltd : 7th Edition : Dr.S.N. Maheswari : Financial Management : Sultan chand & sons : 7th Edition : Khan & Jain : Financial Management : Tata McGraw- Hill Co. Ltd : 4th Edition

Website: www.lancoindustries.com

PROFIT & LOSS ACCOUNT


Particulars Income Sales Less: Exercise duty Sales(net) Other income Increase(decrease) in stocks Total Expenditure Raw material consumed Manufacturing expenses Cost of material sold Salaries, wages and other Scd 2003-04 2004-05 2005-06 (Rs. In Lakhs) 2006-07 2007-08

13 14

23858.30 2834.20 21024.10 102.15 197.41 21323.70

31587.00 2979.50 28607.00 62.34 879.63

33589.00 3294.07 30295.60 77.70 741.46 31114.76

41045.00 4108.00 36936.00 33.59 471.20 37441.00 19232.00 8629.00 644.00

49472.00 3106.00 46365.00 93.21 14.16 46473.00 24779.00 8874.00 659.16

15 16

9148.72 4050.96 13.65

15484.00 4403.50 -

18264.94 6479.97 276.09

64

allowances Other expenses Interest and financial charges Depreciation Total Profit before tax Provision for current tax Less: MAT credit entitlement Provision for fringe benefit tax Provision for deferred tax Profit after tax Balance brought forward from previous year Profit available for appropriation Appropriations Transfer to general reserve Proposed dividend Tax on dividend Balance carried to balance sheet Basic diluted earning per share No. of shares used in computing basic.

17 18 19

872.50 1881.60 1331.15 807.04 18105.67 3218.04 164.17 449.26 2604.61 51.81 2552.80 1500.00 397.64 50.95 604.21 2552.80 6.55 397.63

LANCO INDUSTRIES 954.90 1254.33 1449.00 1612.60 1879.06 2331.00 989.50 1257.86 1832.00 852.50 1093.6 1156.00 24298.00 30505.85 35276.00 3474.20 608.91 2164.00 272.42 52.78 242.00 -52.78 242.00 17.21 1107.60 193.89 566.00 2094.10 415.02 1580.00 604.21 748.77 837.00 2698.30 1500.00 397.64 51.97 748.77 2698.30 5.27 397.63 1163.79 100.00 198.82 27.88 837.09 1163.79 1.04 397.63 2417.00 1000.00 397.00 67.08 858.00 2417.00 3.98 397.63

1862.53 2479.56 2302.59 1512.99 42471.50 4001.44 453.41 453.41 1392.16 17.54 2591.74 858.92 3395.20 1500.00 397.64 67.58 1242.48 3395.20 6.52 397.63

BALANCE SHEET
(Rs. In Lakhs)

65

LANCO INDUSTRIES

Particulars Source of funds 1. Share holders funds a) Share capital b) Reserve & Surplus 2. Loan funds a) Secured loans b) Unsecured loans 3. Deferred tax liability Total Application of funds 1.Fixed assets a) Gross block b) Less: Depreciation c) Net block d) Capital work in progress 2. Investments 3. Current assets, loans and advances a) Inventories b) Sundry debtors c) Cash & bank balances d) Loans and advances Less: Current liabilities a) Current liabilities b) Provisions Net current assets 4. Miscellaneous expenditure (Adjustment) Total

Scd

2003-04

2004-05

2005-06

2006-07

2007-08

1 2 3 4

3976.36 2160.18 10723.23 5404.59 22264.36

3976.30 3804.70 10886.30 9588.74 424.17 28680.37 20021.36 5417.03 14604.33 6015.09 589.83 7075.18 7197.89 247.72 1616.75 16137.54 8095.45 586.14 8681.59 7455.95 10.17 28680.37

3976.30 3993.00 9244.80 15069.10 618.06 32901.40 25035.99 6510.29 18525.70 5604.02 9194.08 6706.59 350.67 2070.42 18321.76 9202.11 354.42 9556.53 8765.23 6.45 32901.40

3976.36 5108.64 16382.92 13733.65 1184.79 40386.36 31824.32 7666.24 24158.08 754.45 10636.86 7667.92 2650.37 5241.68 26196.83 10188.34 538.25 10726.59 15470.24 3.59 40386.36

3976.36 7179.70 17832.23 12271.32 2576.32 43836.66 35516.23 9127.98 26380.35 862.01 12092.91 8814.31 420.10 5289.66 26616.98 9319.38 711.30 10030.68 16586.30 43836.66

17884.47 4648.10 13236.37 2652.95 5294.05 4098.66 447.49 1462.76 11302.96

6 7 8 9 10

11

5052.57 572.72 5625.29 5677.67 13.89 32901.40

12

66